Merck has had its troubles, but there is no question that the divesting of Medco has lifted the company's statistics in key financial
metrics such as return on shareholder equity. Merck's gross margin is in the top quartile, but its profit to sales is the
highest of the 16 pharmas, indicating that it is doing an outstanding job of controlling operating expenses. Merck reps are
also very productive.
Percent of Revenue From New Products
Amgen placed a cat's whisker away from Merck (695 compared with 697, respectively). The company also placed in the highest rankings
in eight of the met-rics. Especially impressive is its number-two spot in enterprise value to sales. Amgen's gross margin
ties with GSK's at the highest level. The company is also the leader in new-product revenue as a per-centage of total revenue.
Not only is Amgen's sales rep productivity impressive, but its overall employee productivity keeps pace with rep productivity.
Finally, a word should be said about Pfizer's drop this year. The company suffered in profitability metrics as a result of
charges taken in 2003 related to its acquisition of Pharmacia.
The following 15 metrics were used to determine each company's total score:
- enterprise value to sales
- R&D spend to sales
- earnings per share
- price to earnings
- sales growth
- gross margin
- percent of revenues from new products
- profit to sales
- sales to assets
- profit to assets
- net profits to net worth
- domestic sales per rep
- sales per employee
- brand power: knowledge capital equity
- return on shareholder equity.
Other rankings, such as prescription sales and R&D spend, are presented here in graphic form but were not includedin the final
score. (See corresponding graphics for each metric.) Because some metrics are more important than others, each was given a
value between one and five to tabulate results. (See "Measuring Up," page 74.)
pharmaceutical executive industry audit
Enterprise value. New this year: The audit replaced the market capitalization metric with enterprise value. Market cap is the overall value
of a company arrived at by multiplying the number of out-standing shares of common stock by the share price on a given date.
Enterprise value is a relatively new metric that has become popular because it includes the impact of a firm's debt on its
capital structure. It is calculated as follows: Market cap plus net debt divided by EBITDA (earnings before interest, taxes,
depreciation, and amortization). Net debt is a company's total debt minus its holdings of cash and marketable securities.
(See “A Better Way to Size Up a Company,” Business Week, October 6, 2003.)
Given the scale of the company, Pfizer, for example, is expected to have a higher enterprise value than, say, Forest Labs.
And it does. Pfizer tops the list with a value of $261.4 billion, and Forest is last with $17.3 billion. But like a heavyweight
boxer at 200 pounds fighting a 110-pound featherweight, this is not a fair performance comparison. So the range of absolute
values was normalized by dividing enterprise value by annual sales.